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Hello guys, we all know how important asset allocation is when it comes to investing! One of the most proven hedges against Equity has been Gold for the past 50 years. Gold has a very negative correlation most of the time against equity.
In India, it's been well known since the last few years, when RBI launched the SGB (Sovereign Gold Bonds) scheme, that it is one of the best if not the best investment products for getting exposure in Gold.
RBI has launched many tranches of SGBs since 2015. They have a great tax advantage as well if someone has held SGB till maturity, capital gains tax will not be charged. It also comes with a 2.5% simple interest paid semi-annually and price appreciation according to the Gold price.
With such benefits, one would want to have their gold portfolio in SGBs and now due to market inefficiencies, you can buy these SGBs from the secondary market (NSE/BSE) for much cheaper than their fair value as of today rather than buying from the primary market.
I have created this tool to calculate this difference (i.e. discount) between the Fair value of that SGB versus its current market price. This idea was inspired by ** Mr Alok Jain (@WeekendInvestng)** of WeekendInvesting.
You can visit here
As of now, when writing this article, there are some SGBs available with up to 30% of discount to their Fair value.
More info on different metrics here ๐
Issue Price is the price at which the SGB was launched.
Years to Maturity is the time remaining for the maturity of the SGB.
Interest Rate is the simple interest payable to you every year.
The present value of future dividends is calculated using the discount/inflation rate (assumed 6%).
Fair value is calculated based on the present value of future dividends along with the current Gold price in rupee terms.
**Discount **is calculated based on the difference between Fair Value & Current Market Price.
**Yield **is the percentage of interest still remaining to be given compared to the current market price.
Prices are updated every hour.
This tool is built using Node JS, Angular, and MongoDB and deployed on Northflank as a Docker container. You can look at the source code at https://github.com/mtwn105/sgb-discount-calculator
If you like my app, do support me by using the "Support Me" button, and keep reading my content by subscribing to newsletters. Till next time, peace.
Disc: This is not a piece of investment advice. It is for educational purposes only. Do your due diligence before investing
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Comments
Join the discussionHi, I have calculated the yield basis the code you have given (yield: (sgb.issuePrice * sgb.interestPayable) / sgb.askPrice), however the result is coming different to what being shown at calculator website.
SGBJUL28IV: [Issue Price (4852) * Interest Payable (2.5%)]/Ask Price (4838) = 2.51% compared with 2.74% yield on calculator website.
Can you please help on this ?
Hi,
Thanks for sharing the tool! It is super helpful!
As a feature addition, is it possible for you to add returns calculator, especially for the SGBs bought through the secondary market?
TIA!
Great tool! Helped me filter some undervalued SGBs. The parameters given - YTM, years to maturity, discount and liquidity are really helpful to arrive at the desired SGB.
A few customizations would make this even more desirable!
- Ability to edit the discount rate. It could default at 9-11% because that's the historical return of gold.
- Capital gains projections. Initially, historical gold returns could be extrapolated. This will give an overall approximated return. Down the line, a better model could be worked upon.
- Minor update request: Tax slab to adjust for the taxes on the interest. Default could be 30%, given the audience of this tool.
Overall a great analyzer. Thanks for building this :)
Thanks for making this tool Amit. I was really looking for something like this.
Do you think you can make something similar for NSE bonds getting traded in capital market.(Not able to add link).
Really Awesome !! Thanks again.
